Lumbering Global Economy Affects IT Industry

The sluggish global economy has migrated to the IT industry, according to a survey released this week by Forrester Research. The analyst firm's somewhat gloomy outlook says 43 percent of companies contacted have reduced their overall IT budgets this year, while 24 percent are curtailing discretionary spending.

Forrester surveyed approximately 950 senior IT managers from Europe and North America for the study. Respondents described their overall services strategies, IT spending and priorities. The survey was conducted in the second quarter of this year, before the slumping economy crept into Europe.

Principal analyst John C. McCarthy, Forrester Research's vice president, noted in a released statement that the impact of the economy varies by industry and geography. Nearly half (49 percent) of North American companies surveyed reported downsizing in their IT budgets. European participants faired better with only 39 percent cutting budgets. Financial services in North America were the hardest hit, with 49 percent reporting IT cutbacks.

Tougher negotiating positions may become a tactic. About 70 percent said they were considering renegotiating with suppliers for lower rates.

Firms on both continents are "renegotiating rates, being more selective in choosing vendors and examining spending plans more thoroughly," McCarthy noted. He pointed to enterprise IT services as being relatively stable. However, about 43 percent of firms interviewed said they are increasing their efforts in infrastructure outsourcing, and 45 percent will use more application outsourcing. Telecommunications and network management lead the charge in offshore placement.

As offshore resourcing gains steam, a growing number of companies are reporting that they are less than satisfied with the service they are receiving, according to the survey. Many told Forrester that the cost savings was less than estimated, and the service quality of the work was inconsistent or poor. Offshore firms were also considered less than satisfactory in responding to business needs for change.

For more on the Forrester survey, "The State of IT Services: 2008," go here.

About the Author

Herb Torrens is an award-winning freelance writer based in Southern California. He managed the MCSP program for a leading computer telephony integrator for more than five years and has worked with numerous solution providers including HP/Compaq, Nortel, and Microsoft in all forms of media.